4.5 Marketing mix (7Ps)

Full video class on YouTube, summary and notes on Instagram, class extracts on TikTok, text below. Have fun!

The main point of this class is to learn how to make marketing decisions.

Marketing mix is a set of decisions to be made in product marketing. Products are either goods (if they are tangible) or services (if they are intangible). Different marketing mixes apply to the two types of products.

For goods, there are 4 decisions to be made:

• Product
• Price
• Promotion
• Place (Distribution)

For services, in addition to the 4 decisions above, there are three more decision to make:

• Processes
• Physical evidence
• People

As you can see, all the decisions start with a “P”, that is why they are referred to as 4Ps and 7Ps. So, all in all, 4Ps is a marketing mix for goods and 7 Ps is a marketing mix for services.

As we learnt in the very first class, product is what organisations offer for sale. It can either be tangible or intangible. Tangible products are called goods and intangible products are called services. In addition to tangibility, products can be divided based on who they are sold to. If they are sold to the general public, to “normal people”, as students often say, then they are consumer products. In other words, they are B2C — business to consumer. If products are sold from business to another business, then they are producer products, or B2B.

Now let’s focus on the most common type of product — consumer goods. Now, it should be clear to you that we are talking about tangible products that are sold to “normal people”. There is a great variety of consumer goods and there are different ways how to categorise. I will not delve into that too much, but I do believe it is important for all IB BM-ers to know these types of consumer goods:

• FMCGs — fast-moving consumer goods. These are the goods that do not expire quickly but wear-off quickly and thus are purchased often. For example, toilet paper, tooth brush, toothpick, etc. All these products can be stored for centuries, but since people use them often, they make repeat purchases of FMCGs often too. This explains the “fast-moving” bit of the concept.
• Perishables — goods that expire/decay quickly. For example, food.
• Durables — goods that have a long lifespan: washing machine, car, laptop, smartphone.
• Speciality goods — goods with unique characteristics that are usually distributed through limited distribution channels only. For example, designer clothes.

Now, once you know enough about what product is, let’s consider it from the marketing decisions (mix) perspective. What do business need to know and consider when they make a decision about which product to market? In order to answer this question, we will consider the 2 aspects of product: product life cycle and branding.

Product life cycle is the succession of stages that a product goes through from launch to decline. The two variables of the product life cycle are time and sales. The stages that the product goes through are:

• Research and development (R&D)
• Launch/Introduction
• Growth
• Maturity/Saturation
• Decline

The picture below demonstrates very well what a product life cycle is:

Let’s get back to the objectives for this part class that relate to product life cycle:

• Explain the relationship between the product life cycle, product portfolio and the marketing mix (AO2),
• Explain the relationship between the product life cycle, investment, profit and cash flow (AO2),
• Discuss extension strategies (AO3).

In order to achieve the first objective, we also have to figure out what product portfolio and marketing mix are. Let’s get to it.

Product portfolio is all the products provided by an organisation. For example, Apple’s product portfolio is iPhone, iPad, MacBook, Apple Watch, Apple TV and all other products that they offer… Product portfolio analysis refers to evaluation of all the products provided by an organisation. Organisations are really interested in knowing which products sell well, which are not, when the best time to stop manufacturing certain products is, when to increase production, etc. Overall, it’s really cool to know as much as possible about one’s product portfolio because it can help to make more money more efficiently.

There are many ways how to conduct product portfolio analysis, but the most popular way for business students is BCG matrix. It is actually included in BM Toolkit, so you can apply it to a lot of business decisions and you can find a detailed explanation about what it is in the Toolkit section of the textbook, but I will briefly explain it here anyway.

BCG matrix is a product portfolio analysis tool that examines the products in terms of market share and market growth. Once you know your product portfolio and you have data about your market share and market growth, you will be able to put all the products you offer into 4 categories using BCG matrix from the picture below.

Now, remember what we are trying to do here? We are trying to achieve the first objective of this class: to explain the relationship between the product life cycle, product portfolio and the marketing mix. You already know what product life cycle is, what product portfolio is, and what marketing mix is (scroll up to the very top of this page to read about marketing mix). Now you are totally ready to start understanding the relationship between cycle, portfolio and mix. Just one little side note:

It is hard to apply product life cycle to services, that is why we will only focus on understanding the relationship between product life cycle, product portfolio and marketing mix for goods only, i.e. 4Ps only.

Okay, if you are ready, then keep reading through this chapter and, as you read, fill in the table below:

Before we start talking about the stages of the product life cycle and understanding how they relate to product portfolio and marketing mix (4Ps), there is one more objective to achieve: “explain the relationship between the product life cycle, investment, profit and cash flow”. So, in order to kill two birds with one stone, please fill in two tables at a time: the table from Figure 4 above and the table from Figure 5 below.

If you forgot what investment, profit and cash flow mean, then please go to Unit 3 and review these concepts. I will just quickly remind about what they mean here:

• Profit — positive difference between revenues and costs. The financial statement where profit is indicated is called Profit & Loss Account.
• Cash flow — total amount of cash inflows and outflows that affect liquidity of an organisation. The documents that show cash flow are called Cash Flow Forecast and Cash Flow Statement. Profit and cash flow are not the same thing and firms may be profitable but have negative cash flow and vice versa.
• Investment — acquisition of an asset that will generate future earnings. The three investment appraisal techniques that are PBP, ARR, NPV.

Now you are ready to fill in two tables at a time (Figure 4 and Figure 5) and understand the relationship of product life cycle and all of its stages with product portfolio, the marketing mix, investment, profit and cash flow. If you feel that you do not entirely understand something, it is okay, at this point. Later on in this class we will learn all the elements of the marketing mix in detail and if you revisit your notes in Figures 4 and 5 one more time, it will all make perfect sense. Good luck!

Another strategy to learn relationships of product life cycle with marketing mix, product portfolio, investment, profit and cash flow is to read parts 2, 3 and 4 of this class (Price, Promotion, and Place) first, and then get back to this section.

👨🏻‍🔬 R&D is the research and development stage of the product life cycle. There is actually a separate class about R&D in Unit 5, it’s for Higher Level students only. One thing that is often developed at this stage of the product life cycle is a prototype — the initial version of the product from which the later versions are developed.

In some sources, you will not even see R&D as a stage of the product life cycle, because at this stage there is no product and no sales yet… Just like the product, the remaining elements of the 4Ps (price, promotion, place) are also in the development stage.

At this stage, there is high reliance on investment, because R&D requires heavy investment... At the same time, there are no profits and there are only cash outflows… Thus, marketing managers try to move on to the next stage as soon as possible, in order to generate profits to cover all the R&D costs.

🚀 Introduction (or launch) is the stage of the PLC when the product becomes available for purchasing for the first time.

With regards to the 4Ps, product at introduction is usually star or question mark (see BCG matrix above): market share is either high or low in a growing market. Price depends on elasticity of demand. We will learn what that means in detail later in this class, but for now, it means that the more alternatives a product has, the lower the price at launch stage is likely to be. And, vice versa, if the freshly launched product is unique and does not have many alternatives, then the price is likely to be high. The aim of promotion at this stage is to increase awareness, to let as many people as possible know about the product. With regards to Place, there are few distribution channels used because it is the very beginning of sales, so product is sold through a limited number of channels.

Reliance on investment is still high at this stage, not because of R&D costs, but because of promotion. It is important to let customers know about the new product and the only way to do that is extensive promotion. Costs usually exceed sales revenue at this stage, so no profits are made yet. Cash flow is still negative but starts to improve slowly, as costs decrease and revenues increase.

📈 Growth is the stage of the product life cycle when sales are growing at a relatively fast rate. At this stage, organisations start to have a chance to start using economies of scale, because sales are growing, output is increasing and it is a perfect opportunity to decrease average costs with the increase in scale of production. Managers love the growth stage! It shows that they are doing their job well because the sales figures are increasing at a fast rate. However, managers start to have a new headache, because competition usually intensifies at this stage, as rivals see that there is a growing market of a certain product.

In terms of product portfolio, product is still either a star or a question mark, because market is still growing and market share depends on a firm’s success in marketing a product. Pricing still depends on elasticity of demand and competition for the same reasons as in the launch stage. Promotion changes slightly: the main goal now is not only to make more people aware, but also to persuade them to choose your product over other brands and make repeat purchases. Number of distribution channels increase, because sales are growing and there is a need to provide the product through as many channels/places (stores, retailers, wholesalers) as possible.

Investment still high, this time because of promotion and place/distribution. Profits and cash flow become low positive: there is still potential to grow and reach the peak, keeping costs at the same level as before.

🍎 Maturity (or saturation) is the stage of the product life cycle where sales reach its peak (saturation). In some sources, you may see that maturity and saturation are different stages of the product life cycle. I prefer explaining it this way: maturity is a stage and a process, and saturation is the peak of that stage. At this stage, competition stabilises and managers try to target new segments (i.e. find new people to sell the same product to). Coca-Cola has been at this stage for decades and does not seem to move on to the next (decline) stage… In order to prolong this stage and avoid the last stage (decline), organisations use extension strategies, that we will discuss in a moment.

If a product is successful enough and manages manage to reach the maturity stage, it turns into a cash cow (see BCG matrix above), because market stops growing and market share is high. Pricing strategies aim at maintaining high sales levels, so temporary price cuts and promotional pricing are common at this stage. The aim of promotion is to constantly remind customers about the product. Again, think about Coca-Cola, has there been a single day in your life when you did not see Coca-Cola’s logo? It’s everywhere: on TV, online, in films, cartoons, supermarkets, billboards, etc. The number of distribution channels is usually at its peak in maturity stage.

At maturity stage, investment is spread across promotional and extension strategies and is relatively low. In the previous stages of the product life cycle, organisations worked on building a reputation of a product, and at maturity stage, reputation starts to work on selling the product. Profits are high and cash flow is positive. That is why, organisations try to prolong this stage and make sure it never ends.

😢 Decline is the stage of the PLC when sales fall after reaching the peak. New products are usually launched when old products reach decline: think of an iPhone, when sales of an old model start to fall, Apple launches a new model to boost sales and restart the product life cycle.

Cash cow product turns into a dog at a decline stage, because both market share and market growth are falling. Price decreases in order to get rid of stocks as soon as possible. Promotion is minimal because there is no point in increasing awareness or reminding about the product anymore. The main goal is just to get rid of stocks. With regards to distribution channels, only the best-selling of them remain, as sales fall.

At a decline stage, there is no or little investment and costs. Most costs are related to keeping stocks of unsold products, that is why price is decreased just to eliminate these costs asap. Cash flow and profit is positive but gradually falling.

Congratulations! If everything above is clear, you have achieved two out of four objectives for this part of class:

• Explain the relationship between the product life cycle, product portfolio and the marketing mix (AO2),
• Explain the relationship between the product life cycle, investment, profit and cash flow (AO2).

Now we are heading towards the achievement of the third objective: “Discuss extension strategies (AO3)”.

Extension strategies refer to organisation's action plan to avoid decline and prolong maturity stage of the product life cycle. If we put extension strategies onto a product life cycle chart, it’ll look like this:

There are a lot ways to prolong the product life cycle, but we will discuss only some of the most common extension strategies: market development, redesigning, targeting new segments, price reductions, repackaging, differentiation.

Market development is one of the strategies from Ansoff matrix — a business tool from BM Toolkit. It refers to selling existing products in new markets. For example, Google often sells its products in the US market only (Pixel smartphone, Pixelbook, Google Nest, Pixelpass, etc.), and if the sales are successful, they start offering their products in new markets in order to prolong the product life cycle of their products.

Redesigning is an extension strategy that refers to modifications of existing products. You probably heard of “limited edition” of different products, so the purpose of them is actually to prolong sales of an old product. For example, Volvo, unlike most car manufacturers, does not update its product portfolio for a quite a long time. One of their most successful models ever, family wagon XC70, at the end of its product life cycle, was offered in “black edition” (all the parts were black and only a limited amount of cars in this edition were produced), presumably in order to encourage customers to buy an outdated car for a little bit longer.

Targeting new segments is an extension strategy that is similar to market development. The difference is that market development often refers to new geographic locations, while new market segments often refers to the same location but new kind of people (with different lifestyles, or different ages, or different occupations). However, essentially, new segments and new markets may be synonymous. An example of targeting new segments could be Coke Zero that is sold in the same locations as regular Coke but to people who are healthy-lifestyle-concerned.

Price reductions refer to an extension strategy when price cuts encourage higher purchases. Seasonal sales of clothes are an example of this strategy.

Repackaging refers to changing the package of a product without changing the product itself. Think about Coca-Cola, again. They change their bottles every once in a while and it seems to be a successful strategy: even though customers know the taste of Coke, they might be willing to buy Coke just because the bottle looks “cool” and they’ve never drank Coke in that bottle before.

Differentiation is an extension strategy that refers to using the unique selling point (USP) in such a way that customers perceive the product or organisation as unique and different from those that are offered by competitors. For example, even though both organisations offer pizza, Domino’s offer delivery within 30 minutes, Papa Johns offer the freshest ingredients.

Since the assessment objective for extension strategies is to discuss/evaluate them, let me just remind you about the SLAP rule that we use to evaluate all strategies (including extension strategies):

As I mentioned at the beginning of this part of class, there are two aspects of Product as an element of the marketing mix: product life cycle and branding. So far, you learnt everything about the first aspect and achieved three class objectives. Now it is time to learn the second aspect of product — branding, and to achieve the last, fourth, objective for this part of class: "Explain the importance and the aspects of branding (AO2)”.

Brand is a combination of name, symbol and other characteristics that is associated with a certain business/product. Branding is the process of attributing a set of characteristics to a business/product that adds value and differentiates it among competitors. One of the most globally popular organisations that study brands is Interbrand. There is a lot of fun and useful info on their website, I highly recommend you to spend some time there learning about branding. According to Interbrand, brand is “the sum of all expressions by which an entity (person, organisation, company, business unit, city, nation, etc.) intends to be recognised”.

There is no agreement about what actually helps organisations to sell their products. Some say that brands sell products, some say that products sell brands, some say that first (at launch stage of the product life cycle) products sell brands and then (at maturity stage) brands start to sell products. If you are interested in a discussion about that, leave a comment under this post and let other BM-ers know what you think.

There are four aspects of branding: awareness, development, loyalty and value. Let’s discuss all of them in detail.

😍 Brand awareness is the extent to which people are able to recognise a brand. The most well-recognised brand is Coca-Cola. It is recognised by 94% of people! Brand awareness is very important at the launch stage of the product life cycle because the higher it is, the faster the product can reach the growth and maturity stage. Additionally, promotion costs do not have to be that high for brands with high awareness compared to new unknown brands.

👷🏻‍♂️ Brand development is a strategy that aims at strengthening the brand and improving its awareness. Some examples of brand development are: sponsoring events or sports teams to support causes that align with core values. For example, when Emirates airlines sponsor FC Arsenal, they are developing their brand among football fans, demonstrating that they support sport. Brand development, also, in way, acts as an extension strategy, because it helps to prolong the product life cycle.

Other examples of brand development might include doing market research, identifying the target market, designing a logo, developing a brand name, developing USP in order to build appropriate brand perception among customers, or developing a marketing strategy in general.

The top achievement in brand development is when a brand becomes generic brand — this is when the product name is replaced with a brand name. For example, in the US most people do not say “tissue” or “napkin”, they say “Kleenex”, even though tissues/napkins are of a different brand. Another examples are Frisbee and Bubble Wrap.

🐶 Brand loyalty is customers’ dedication to make repeat purchases of the same brand. It is usually improved via word-of-mouth (WOM — person-to-person oral communication) and brand ambassadors — celebrities who are using the brand in public appearances. When people hear good stories/reviews about certain products/brands, they are more likely to purchase them more often. Similarly, when people see celebrities use products of certain brands, it makes them feel that these brands are trustworthy and that they should use them too.

The biggest fear of marketing managers, in terms of brand loyalty, is called brand switching — when customers become disappointed in certain brands and start purchasing from competitors instead. For example, if someone got tired/upset with iOS and switched to Android, that would be an example of brand switching. One of the ways to prevent brand switching is developing loyalty schemes — marketing strategies that are aimed at retaining customers. An example of a loyalty scheme is when a coffee shop offers 10th cup of coffee for free, if you collect 9 stickers for purchasing 9 cups of coffee. All sorts of membership cards and bonus points for repeat or larger purchases are also examples of loyalty schemes.

💰Brand value is a premium that customers are willing to pay above the actual value of the product. If a new unknown company creates a smartphone that is as good as iPhone, they will still not be able to change prices as high as Apple’s just because their brand is completely unknown and does not have much value. This way, as in the smartphone example, brand value acts as an entry barrier to new market entrants.

In my humble opinion, Starbucks, Twitter and Beats are some of the most overvalued brands. Their products, to my taste, are mediocre whereas the prices are relatively high. Please leave a comment with other brands that are overvalued, so that I can create a Top-10 list, based on lewwinski.com's most common readers' opinions.

In order to wrap it up with branding and its aspects, let’s summarise its advantages and disadvantages.

On the one hand, brand acts a legal protection due to copyright. Branded products are protected from illegal copying. Additionally, branding acts as a differentiation strategy and helps customers to distinguish between different brands/products and provide a sense of uniqueness. Besides, brands add value to products and increase customer loyalty, preventing people from brand switching and encouraging repeat purchases. And lastly, all of the positive effects of branding result in increased profit margins.

On the other hand, brand development is costly and time-consuming and there is no recipe how to make a successful brand: it is always a unique and special story and case study. Additionally, good brand does not mean good product… So, very often, reliable and trustworthy brands produce unreliable and inferior products that result in decreased brand value that acts as a stigma even for successful products. And lastly, from customers’ perspective, they are very often overpaying for “feel good factor” — there is nothing special in a product and there are a lot of good alternatives, but they end up paying more just because purchasing a certain brand makes them feel good.

Price is the amount of money required/given in payment for something. When it comes to marketing mix, it refers to the decision about the appropriate pricing strategy. Standard Level students are expected to be able to discuss five pricing strategies, and Higher Level students — eight (plus price elasticity of demand). All the pricing strategies in IB BM syllabus are:

1. Cost-plus pricing
2. Penetration pricing
3. Loss leader pricing
4. Predatory pricing
5. Premium pricing
6. Dynamic pricing (HL)
7. Competitive pricing (HL)
8. Contribution pricing (HL)

The assessment objective for this part of class is AO3, which means that we are learning to evaluate/discuss pricing strategies. In order to achieve this objective, it is crucial to understand when these pricing strategies work well, and when they do not. So, as always, I am going to keep you busy and suggest filling in the table below:

Cost-plus pricing is a pricing strategy whereby managers add a markup to cost in order to determine the price. Markup is a percentage that is added to direct costs of a product. It is not the same as profit margin! If markup is direct costs plus percentage, then profit margin is profit divided by revenue, as we learnt in 3.5.

The way cost-plus pricing works is very simple. Let’s say it costs XYZ furniture company $50 to produce a chair and $100 to produce a table. Marketing managers at XYZ decided that they will use cost-plus pricing and add a 50% markup to all their products. This, chairs are priced at $75 and tables are priced at $150.

On the one hand, cost-plus pricing ensures that costs are covered. On the other hand, it disregards competitors’ prices and other qualitative factors. So, if competitors offer products that are similar in quality but are lower in price, then cost-plus pricing might not work.

Penetration pricing refers to setting a low price in order to penetrate the market and attract more customers. This strategy is usually used either by new businesses or by existing businesses that offer new products. Either way, organisations that use this strategy try to increase their market share and attract customers by offering a low price.

On the one hand, penetration pricing allows organisations to increase sales and increase brand awareness. On the other hand, high market share and high sales volume do not necessarily mean high profitability… Additionally, brand value might be at risk because, very often, cheap products are associated with inferior quality.

Loss leader pricing refers to selling some products at a loss in order to attract more customers to buy other products. This strategy is often used by supermarkets. For example, they might offer apples or toilet paper (or any other thing they sell) at a price that is lower than the costs! Apparently, supermarkets are losing money by selling some things at a loss. However, they might compensate for this loss with higher prices for other products that customers are very much likely to buy in supermarkets.

On the one hand, loss leader pricing attracts potential customers and works well for FMCGs (see what that is in the first part of this class). Besides, it might cause brand switching (this is also something we discussed in the first part of this class): when customers are driven by low prices to buy brands that they are not used to purchase. However, this strategy only works only if customers purchase other products, otherwise the organisation will experience loss.

Predatory pricing is a temporary measure to squeeze competitors out of the market by offering lower prices. If several competitors try to use predatory pricing against each other, it turns into a price war. Customers might benefit from price wars in the short term and purchase products at low prices, but in the long term it might result in monopoly, if eventually competitors are defeated in the price war.

On the one hand, predatory pricing is quite an effective measure to increase market share. Additionally, it serves as a high entry barrier to new new market entrants, who will not be able to succeed unless they are able to offer low prices. On the other hand, this strategy is not sustainable in the long term because it will simply drive the organisation to loss. Besides, it is unethical because it encourages unfair competition and it is even banned and illegal in some countries.

Premium pricing means setting a high price for premium high-quality products (designer clothes, supercars, luxury watches). Premium pricing creates a brand image of something scarce, unique, special, expensive, not affordable by most people. It is not applicable to low-quality bargain products.

On the one hand, premium pricing allows organisations to enjoy high profit margins. Additionally, it increases brand value. On the other hand, with this pricing strategy, sales volume (quantity) is usually quite low. Besides, this strategy is inapplicable to some products.

The three pricing strategies below and Price Elasticity of Demand are required for Higher Level students only. Standard Levelers can skip it and go straight to the last three paragraphs of this section and read more about a combination of pricing strategies, factors that determine pricing decisions and tips for evaluating the pricing methods.

Dynamic pricing refers to a strategy whereby prices change depending on the circumstances (time, demand, supply, etc.). For example, airline tickets price changes depending on the proximity to the flight date, hotels change their prices depending on the season, and ride hailing services (Uber, DiDi, Yandex Taxi) range their prices depending on the time of the day.

On the one hand, dynamic pricing is flexible and gives a chance to maximise profits in the given situation. On the other hand, it is not applicable to many products and may cause customer dissatisfaction (imagine all supermarkets raised the prices for umbrellas when it started to rain).

In competitive pricing strategy, price is determined based on competitors’ prices. This pricing decision is market-oriented and relies on a thorough market research.

On the one hand, competitive pricing ensures sales: since organisation’s prices are comparable to those of competitors, it is evident that some customers would purchase organisation’s products, given that they are in line with their preferences and reasonably priced, compared to alternatives. Additionally, this strategy helps to encourage brand loyalty (see the first part of this class): customers will not be enticed to switch to another brand because of lower prices. However, in this strategy’s there is too much reliance on competitors who might deliberately manipulate prices in their favour, which makes this pricing strategy not sustainable in the long term.

Contribution pricing is when contribution is the main determining factor in a pricing decision. Contribution equals to selling price (P) minus average variable costs (AVC): Contribution per unit = P – AVC. Knowing total contribution and fixed costs, firms are able to set prices that allow to make profits and cover all costs. Let’s see an example that illustrates a contribution pricing logic.

On the one hand, with contribution pricing, profitability is ensured because it is the ultimate goal of this strategy — to ensure profitability, to make sure there is enough money to cover all costs. Additionally, as you will learnt from the Toolkit, contribution is useful for special order decisions: when a customer wishes to purchase an unusually large quantity of product and, in return, asks for a lower price, contribution pricing will allow to see what is the minimal price that would still make sense for both the seller and the buyer. However, this pricing strategy, similarly to cost-plus pricing, disregards competitors’ prices and other qualitative factors.

Now, one more thing on the list of Higher Levelers is not really a pricing strategy, but more of a factor that determines the pricing decision. It is called price elasticity of demand (PED). It refers to the extent to which demand is affected by price changes. It is calculated by dividing the percentage (%) of change (Δ) in quantity (Q) demanded (D) by percentage (%) of change (Δ) in price (P):

PED = %ΔQD ÷ %ΔP

Based on the results of this simple calculation, price elasticity can be:

• Inelastic: if it’s between 0 and 1. It means that change in price doesn’t affect demand much.
• Unit elastic: 1. It means percentage of price change equals to percentage of demand change.
• Elastic: more than 1. It means that small change in price affects demand greatly.

Let’s see an example that illustrates how PED impacts pricing.

Now, a few tips and reminders for both Higher Level and Standard Level students.

First of all, organisations do not have to stick to one pricing strategy only. They may use a combination of them, and, in reality, it is often a combination of strategies. It is important to know what pricing strategies are, though, in order to suggest/analyse different combinations of pricing strategies.

Secondly, there are plenty of factors that impact pricing decisions. Some of the factors that were mentioned in this part of class are PED, competitors, demand, seasons, trends and fashion, brand value and awareness, customer preferences, etc.

And lastly, since pricing strategies are strategies, SLAP rule for evaluation would apply really well as a way to discuss pricing strategies, so let me paste Figure 9 here in order to illustrate what SLAP rule is.

Before we get into the promotion decision of the marketing mix, let me remind you that advertising, promotion and marketing are not the same thing and these words should not be used interchangeably!

Students very often use advertising, promotion and marketing as synonyms and it causes a lot of misunderstandings. You already know that promotion is only one of the decisions to be made in marketing, and now you will figure out that advertising is only one of the decisions to be made in promotion.

Promotion means communicating messages about the product and/or brand to customers. Promotion usually serves one or several of the following objectives: to inform, to persuade, to remind. There are three aspects of promotion: above-the-line (ATL), below-the-line (BTL) and through-the-line (TTL).

ATL refers to promotion through mass media, that is non-targeted. For example, a TV commercial on a national TV station is an example of ATL promotion. It is pretty much for everyone and the main goal of ATL promotion is to increase awareness about a product and/or a brand. It reaches a wide audience but it does not guarantee immediate purchases. Additionally, it’s quite expensive.

BTL refers to direct, targeted promotion, not using mass media. For example, sales promotion that is displayed in the shop window is an example of BTL promotion. It targets only a specific group of customers and the main goal of BTL promotion is to secure sales. It reaches a smaller audience compared to ATL, but, on the upside, it might cause immediate purchases. Additionally, it is less costly than ATL.

Differences between ATL and BTL are summarised in the table below.

ATL and BTL are quite outdated concepts that were coined in 1950s. However, they are still widely used and it is a good idea to know what they mean. Nowadays, promotion often includes elements of ATL and BTL at the same time. For example, when a nation-wide TV commercial is supported by in-store sales promotions. This kind of promotion, that includes elements of both ATL and BTL, is called through-the-line promotion (TTL).

Hopefully, you still remember that marketing mix is basically a combination of decisions to be made when marketing a product. Within marketing mix, there is also promotional mix — a set of decisions to be made when promoting a product.

In different sources you might find different interpretations and explanations of promotional mix. However, they all have similarities and usually include advertising as an ATL decision of promotional mix and personal selling, public relations and sales promotions as BTL decisions of promotional mix. These four decisions of promotional mix (advertising, personal selling, PR and sales promotions) can also be called forms of promotion.

Regardless of what we call them, let’s try to achieve the first objective of this part of class (explain the aspects of promotion) by breaking down the aspects of promotion (ATL, BTL, TTL) into several forms. As you read through the paragraphs below, please fill in the table in Figure 18.

With regards to advertising, it is usually divided into two categories: informative and persuasive. The purpose of informative advertising is to tell the customers about the features of the product. It usually appeals to people’s logic. Some examples of informative advertising techniques are:

• comparative advertising (when advertising includes comparison of product features with those of competitors’ products),
• numerical factor (when advertising is providing a lot of numerical data about the product features).

The purpose of persuasive advertising is to convince the customers to buy the product. This kind of advertising usually appeals to emotion. Some examples of persuasive advertising:

• bargain appeals (when customers are encouraged to buy more in exchange for a certain benefit, such as a discount that only works until the end of the day),
• celebrity endorsement (when a celebrity is featuring an ad or commercial),
• feel good factor (when advertising includes images of happy people that use the advertised product),
• guarantees (when advertisement is promising certain conditions to buyers),
• sex appeal (when advertisement includes sexy images),
• slogans and jingles (mottos and short music pieces that reinforce brand image),
• three yes technique (when advertisement asks questions that customers can potentially say “yes” to three times in order to achieve higher engagement levels).

The next form of promotion (or element of the promotional mix) is personal selling. It means person-to-person sales/purchasing experience. Basically, it refers to what happens exactly at the time of purchase and how exactly sale is made. For instance, sales managers in car dealerships, in-store shop assistants, telephone or videoconference sales are all examples of personal selling.

The next form element of promotional mix is public relations (PR). It refers to professional maintenance of a favourable public image that includes promotional activities that are aimed at increasing the brand value, (re)positioning a brand/product, enhancing a brand image. For some organisations, it’s important to maintain a positive image, however for some organisations it’s important to keep the buzz around them. With regards to the latter, someone said “there is no such thing as negative publicity”, which means that it’s good as long as people talk about you, how they talk about you (in a good or bad way) isn’t that important. Some examples of PR activities are launch parties, press-conferences, interviews and donations. For example, Emirates airlines company sponsors FC Arsenal.

An interesting example of “there is no such thing as negative publicity” attitude is McDonald’s that changed its name in China. It used to be called “mai-dang-lao”, which doesn’t really mean anything but sounds like “McDonald’s” in English. Now it is called “jin-gong-men”, which means “golden arch”. Based on my personal experience, people in China still call it “mai-dang-lao” and my guess is that McDonald’s got a lot of free promotion in China by simply changing its name. When that happened, all Chinese media were posting news about it and my students were asking me “have you heard that McDonald’s changed their name?” for a few days… See? Very cost-efficient PR! Zero yuan, and everyone's talking about you!

The last form of promotion (or element of promotional mix) is sales promotion. It means short-term measures that are conducted in order to increase sales. For example, BOGOF (buy one get one free), coupons & vouchers, free samples, competitions, “free” gifts, loyalty schemes, discounts, prizes, etc.

Quick summary. So, there is marketing mix that includes 7Ps for services and 4Ps for goods. Within the promotion “P” of the marketing mix, there is another promotional mix that includes a series of ATL and BTL activities: advertising (persuasive or informative), personal selling, public relations (PR) and sales promotions. You can remember these as APPS, if it’s easier. “Mix” (marketing or promotional) is a set of decisions that have to be made.

There are different factors that impact the choice of promotional methods. They are all summarised in the picture below. In my opinion, budget is one of the most important factors. With low budgets, organisations are simply unable to afford ATL promotion, so will probably focus on BTL methods mostly. Think about how other factors from the picture below impact the choice of forms of promotion.

So far, we have talked about promotion from two perspectives: “line” (or aspects of promotion: ATL or BTL) and “mix” (different forms of promotion in terms of different elements of promotional mix). There is one more perspective — promotional media (the means or intermediaries through which promotional activities happen: TV, radio, internet, etc.) — we will talk about it in a moment. Keep in mind, that one and the same promotional activity can be interpreted from several perspectives at the same time. For example, when company X shows a commercial on the central channel of country Y, it is:

• ATL (from the aspects of promotion perspective),
• advertising (from the promotional mix perspective), and
• TV (from promotional media perspective).

With regards to promotional media, the ones that usually refer to ATL promotion are, of course, mass media: TV, radio, newspaper, magazine, outdoor advertising (for example, billboards or posters). BTL promotional media are direct mail, publicity through brand ambassadors, word-of-mouth (WOM) and different events. And medium that usually refers to TTL promotion (in addition to all of the above) is internet. To be more specific, digital marketing is one of the main means of TTL promotion. Digital marketing refers to marketing through digital tools and technologies. One of the aspects of digital marketing is social media marketing (SMM).

SMM refers the use of social media platforms (Instagram, WeChat, YouTube, Twitter, etc.) to promote a product and/or brand. The advantages of SMM are:

• Clear KPIs and metrics. For ATL, it is impossible to know how many people purchased a product right after they saw an ad, but with SMM it’s really easy to do as long as customers click the link and make a purchase.
• Direct response. Again, unlike traditional promotional methods, the time between promotional activity and potential purchase is minimal: customers can click and buy only a few seconds after they see an ad.
• Cost-efficiency. SMM is relatively inexpensive (compared to ATL) and it is easy to measure its success. Thus, for minimal budgets, organisations may get fruitful outcomes.
• Improved brand awareness and new segments. Young people, the so-called Gen Z do not really watch TV and are very critical about traditional ATL methods, so SMM helps to target those market segments that are not responsive to ATL.

However, despite all the advantages of SMM, only small potion of internet traffic results in actual real purchases and profits… So, even though the role of digital marketing and SMM is increasing, it is still complementary to traditional ATL and BTL marketing.

With regards to SMM, our class objective was to learn to discuss it as a strategy, so in addition to the pros and cons above, you may also apply the SLAP rule in Figure 9 to make judgements about SMM strategies of different organisations.

Another quick summary. That was quite a big and heavy chunk of text about promotion. In a few words, we had two objectives: to explain the aspects of promotion and to discuss SMM as a promotional strategy. For the first objective, we learnt ATL, BTL and TTL and promotional mix (aka forms of promotion) that applies to all aspects of promotion. For the second objective, we learnt that SMM is part of digital marketing and that despite its amazing advantages and increasing roles, it is still just a little addition to traditional marketing approaches.

“Place” sounds a little bit confusing. It makes people think that this marketing decision is about location where products are sold. In reality, it’s more than that and a more accurate term for this element of the marketing mix would be “distribution”. But, if it was called distribution, then "6Ps&1D" wouldn’t sound as cool as "7Ps". So, "place" it is.

Place (distribution) refers to the decision with regards to how products reach the end consumer or user through different distribution channels (chain of people and organisations that a product goes through on its way from producer to end consumer). This decision is about delivering the right product to the right consumer at the right place at the right time.

These people and organisations that a product goes through on it way to end consumer are called intermediaries. There are all sorts of intermediaries, but I believe the most common ones are: retailers, distributors, agents, wholesalers, car dealerships and vending machines.

The more intermediaries there are between the producer and end user, the more levels there are in distribution channels. We are going to learn zero-level, one-level and two-level distribution channels. The assessment objective for this class is to discuss distribution channels, so, as always with this kind if objectives, focus on pros and cons, apply the SLAP rule (Figure 9 above) and fill in the table below as you read through the chapter.

Zero-level is a type of distribution channel that has zero intermediaries. Products are sold to consumers directly from the producer. Some examples of this type of distribution are: e-commerce, mail order catalogues, booking a room directly in a hotel. In all cases, consumer deals directly with the manufacturer/provider.

On the one hand, zero-level distribution allows producers to enjoy high profit margins. They can charge the same price as other businesses that use intermediaries, but they do not have to share profits with intermediaries. Or, since there are no intermediaries, these organisations may charge lower prices, thus increasing sales and attracting more customers. Additionally, in zero-level distribution, there is full control over distribution because organisations do not have to rely on intermediaries in the distribution process. However, since there are no intermediaries, there isn’t anyone who can take care of distribution. So, organisations have to deal with logistics: transportation, customer service, after-sales care, etc.

One-level is a type of distribution channel with one intermediary. Premium goods and goods in high quantities are usually sold this way. Premium goods, such as designer clothes, have to be sold in premium stores to maintain a brain image. In addition, premium goods producers have to control distribution and make sure it's up to the highest standard. That is why, usually they use only one intermediary. For those producers that manufacture large quantities of goods, it is difficult to sell them piece-by-piece, so they usually rely on an intermediary that breaks the bulk and deals with personal selling. Examples of intermediaries on one-level distribution are retailers, or distributors, or agents, or car dealerships (only one of these at a time, of course).

On the one hand, retailers (the most common type of intermediary in one-level distribution) are in change of distribution, storage and sales. Producers do not have to deal with all that and it is very convenient to sell large quantities of goods at the same time to only one organisation, compared to selling goods slowly one-by-one to multiple consumers. However, with this convenience comes reliance on retailers: if they are not trustworthy, then their shortcomings will have an impact on producers' brand image… Additionally, since retailers (or whatever other intermediary there is) have to earn money too, so either products are sold at higher prices (compared to zero-level distribution) or producers have lower profit margins, in order to cut the price for retailers to make sure the end consumer gets products at a low price. Thus, it is either lower profits margins for producers or higher prices for consumers.

Two-level is a kind of distribution channel with two intermediaries. It works well when producer is far from consumer (thus there is a need to have many intermediaries in between) or for really large quantities of goods (thus there is a need to break the bulk twice). The typical examples of two intermediaries in two-level distribution are wholesalers and retailers.

On the one hand, this type of distribution channel allows to have a wide coverage of geographic locations and build an extensive distribution network. Additionally, similar to one-level channel, organisations may enjoy sales of large quantities in a short time. However, there is even more reliance on intermediaries and even higher prices and/or lower profit margins compared to one-level distribution.

Final reminders. Distribution channel is not the same as transportation method. Distribution channel is not the same as location.

In this part of class we will figure out the meaning of employee-customer relationships and cultural variation. Then, we will discuss their importance of these two things in marketing a service.

People is the element (decision) of the marketing mix for services that is concerned with employee-customer relationships. Employee-customer relationships refer to all the interactions and communication between people who provide a service and people who purchase it. Employees’ appearance (for example, uniforms they wear), manners and attitudes, the way they provide feedback to customers, communication, response to complaints are all examples of decisions that have to be made when thinking about the people element of the 7Ps.

Services are produced and consumed at the same time, that is why employee-customer relationships are extremely important as they are the essential element in the provision of services. However, those who call themselves critical thinkers might say that nowadays not all services are provided by humans… So, is it still “people” element of the marketing mix or should it be called differently? Or does it mean that for automatic/mechanised services there are only 6Ps? Or, maybe, even if there are no humans at the time service is provided, there are still people involved, for example if customers need assistance or want to complain? There is no right answer to that but it is clear that the definition of “people” is evolving right now. Let me know what you think “people” means for services that are not provided by humans.

Now a few words about cultural variation. What culture is can be interpreted in many ways. If you allow me to summarise them, then I would say there are two kinds of culture:

• National (or ethnic) culture, for example: Chinese culture, Russian culture, Indian culture, Spanish culture, Arab culture, etc.
• Organisational culture: we learnt in in 2.5, feel free to review that class if you forgot what it means.

You might also want to check out Hofstede’s cultural dimensions in the Toolkit to learn more about different aspects of culture.

Regardless of how we define culture, it is really important to avoid cultural gap in employee-customer relationships. Cultural gap means cultural differences that prevent mutual understanding. If, due to cultural differences, employees are not able to communicate well with the customers, then customers might not enjoy their purchasing experience and it will result in brand switching or decreased brand value for the seller.

There is a widespread saying “think globally, act locally” that many businesses use as their strategy. It means that multinational companies should have a global vision (how to be successful all over the world) but at the same time they should respect local traditions due to cultural variation, i.e. the differences among cultures.

From the cultural variation perspective, we may divide different environments/places into monocultural (one culture dominates) and multicultural (many cultures are in one place). Let’s see how important it is for businesses. On the one hand, in a monocultural environment, the tastes and preferences of customers are likely to be very similar, which makes it easier to market products, because all people in these environments have very similar tastes and values and businesses may use marketing economies of scale. However, for multicultural environments, businesses have to adjust their marketing strategies due to high cultural diversity and variation. Just see some of McDonald's items that are available in certain locations only and you will see what having to culturally adapt is.

So, for profit-driven organisations, cultural variation is an obstacle that makes them adjust their marketing strategies and localise them. However, it is also an opportunity that might reveal some unconventional marketing strategies in different locations that might be applied across several locations later on. Simply speaking, because of cultural variation, businesses have to work hard to adapt to local tastes but they can also learn from it.

Processes refers to the element (decision) of the marketing mix for services that is concerned with the purchasing experience. Simply speaking, processes are about how exactly purchase/sale is made and/or product is delivered. Some examples of processes are delivery, customer service, payment methods, waiting times, queueing times, etc.

With regards to the importance of processes, let’s consider two scenarios: (i) service-providing organisations do not make a decision about processes and (ii) service-providing organisations make a decision about processes.

If this element of the 7Ps is ignored, then services are provided differently every time: processes are not standardised, managers do not think about it, so everything depends on the employees. If they are in a good mood and are experienced, then customers might be satisfied. If not — customers are not satisfied and might switch to a different brand. In addition to high reliance on employees who are not trained to provide services according to standards, ignoring processes decision might result in uncontrollable word-of-mouth promotion (WOM): those customers who were lucky enough to enjoy the way services were provided might share positive reviews, but those who did not have that pleasure are very much likely to share negative reviews. Making processes decision minimises the risk of uncontrollable negative WOM.

If processes decision is made, then there is some uniformity and standardisation in how services are provided. Not only it allows to maximise the chances for positive WOM, but also it becomes easier for managers to trace shortcomings and improve. If there is a system in place to collect feedback from customers about different aspects of service provision, then it is possible to improve. If processes decision is ignored, it all becomes ad-hoc and responsibility is fully on employees’ shoulders.

Physical evidence refers to the tangible aspects of a service. It allows consumers to evaluate and predict the quality of provided services. For example, the star rating system for hotels is basically an indicator of physical evidence in the hotels measured by certain standards and expressed as a number of stars (from 1 to 5). Some other examples of physical evidence in service-providing businesses are classrooms and facilities in private schools, equipment and materials used by barbers, car mechanics, manicurists, etc.

In order to discuss how important physical evidence is in marketing a services, we will consider two scenarios: when physical evidence is appropriate and when it is not. If it is appropriate (for example, in a 5-star hotel there is designer furniture, original paintings and expensive decorations), then reality matches (or even exceeds) customers’ expectations, which might result in customer satisfaction and, as a result, customer loyalty, which will cause positive WOM promotion and have a favourable effect on brand value. However, if physical evidence in inappropriate (for example, if premium perfume is sold in a dirty market stall), then customers are very much likely to get disappointed, which might result in negative WOM and brand switching… So, bottomline is that decision about physical evidence is extremely important.

Now a paragraph for critical thinkers. If you’ve ever been to Asia and know how amazing, delicious and popular street food there is, then you might think: “well, physical evidence is not that important, as long as food is good”. In my experience of living in China for 8 years, some of the most delicious foods I’ve ever had were very often sold in quite unpleasant places, and people were queueing up anyway. So, after all, maybe it’s better to focus on product quality, rather than the physical evidence? There is no right answer to that. What is definitely right though is knowing all the 7Ps in order to judge how meaningful or meaningless they are.

As I mentioned at the beginning of this long-long class, marketing mix is a set of decisions to be made in product marketing. There are four decisions for goods (4Ps): product, price, promotion and place. And there are seven decisions for services (7Ps): 4Ps + processes, physical evidence and people.

On the one hand, the concept of marketing mix (4Ps and 7Ps) is a straightforward and simple framework for marketing decisions and strategies. It helps managers greatly to make sure they think about all the aspects of marketing before selling the product. It is, in a way, a checklist for managers to make sure they considered everything before making a decision about marketing strategies.

On the other hand, reality is more complicated than four or seven decisions and there is always something that does not go according to the plan or does not fit into the theoretical framework. For example, many people argue that as long as product is of good quality and is offered at an affordable price, nothing else matters.

With regards to the objective for this part of class, you already have enough knowledge to make judgements about the appropriateness of different marketing mixes for different products and businesses. What matters now is practice. Using the table below and a company and product of your choice (for example, Apple’s iPhone 14 Pro Max in Beijing) think whether the 4Ps (for goods) or 7Ps (for services) are appropriate to the marketing objectives. For each element of the marketing mix, think about what it exactly is in the context of the chosen organisation, what the pros and cons of that decision are and whether each of the decisions (Ps) is appropriate. Lastly, write a paragraph mentioning the following things:

1. Is this marketing mix in line with the organisational priorities (objectives, mission, strategies)?
2. Should or should not organisation apply this marketing mix?
3. What might organisation do in order to improve its marketing mix?
4. What kind of additional information might help you to make a more accurate decision about the appropriateness of this marketing mix?

Good luck!

Make sure you can define all of these:

1. Marketing mix
2. 4Ps
3. 7Ps
4. Product
5. Good
6. Service
7. Producer products
8. Consumer products
9. B2C
10. B2B
11. FMCGs
12. Perishables
13. Durables
14. Speciality products
15. Product life cycle
16. Product portfolio
17. R&D
18. Prototype
19. Introduction/launch
20. Growth
21. Maturity/saturation
22. Decline
23. Extension strategies
24. Market development (extension strategy)
25. Redesigning (extension strategy)
26. Targeting new segments (extension strategy)
27. Price reductions (extension strategy)
28. Repackaging (extension strategy)
29. Differentiation (extension strategy)
30. Brand
31. Branding
32. Brand awareness
33. Brand development
34. Generic brand
35. Brand loyalty
36. WOM
37. Brand ambassador
38. Brand switching
39. Loyalty schemes
40. Brand value
41. Price
42. Cost-plus pricing
43. Markup
44. Penetration pricing
45. Loss leader pricing
46. Predatory pricing
47. Price war
48. Premium pricing
49. Dynamic pricing (HL)
50. Competitive pricing (HL)
51. Contribution pricing (HL)
52. Special order decision
53. Price elasticity of demand (PED)
54. Inelastic demand
55. Unit elastic demand
56. Elastic demand
57. Promotion
58. Above-the-line (ATL) promotion
59. Below-the-line (BTL) promotion
60. Through-the-line (TTL) promotion
61. Promotional mix
62. Informative advertising
63. Comparative advertising
64. Numerical factor
65. Persuasive advertising
66. Bargain appeal
67. Celebrity endorsement
68. Feel good factor
69. Personal selling
70. Public relations
71. Sales promotion
72. BOGOF
73. Digital marketing
74. Social media marketing (SMM)
75. Place (distribution)
76. Distribution channels
77. Intermediaries
78. Zero-level distribution channel
79. One-level distribution channel
80. Two-level distribution channel
81. People
82. Cultural gap
83. Processes
84. Physical evidence